ALBANY, N.Y. – New York’s attorney general can continue his effort to bar two former American International Group Inc. executives from participating in the securities industry or leading a public company, the state’s top court said Tuesday.
The Court of Appeals ruling involves a remaining piece of a high-profile lawsuit originally filed in 2005 by then-Attorney General Eliot Spitzer.
The lawsuit claims former AIG CEO Maurice “Hank” Greenberg and former chief financial officer Howard Smith engaged in accounting fraud meant to dress up the insurance giant’s books.
AIG was bailed out by the federal government during the 2008 financial crisis. Much of the case has been resolved in a series of agreements and decisions over the years, including AIG itself resolving state charges as part of a $1.64 billion agreement with regulators in 2006.
And Tuesday’s ruling shows that Attorney General Eric Schneiderman’s office dropped monetary damage claims in the case after a $115 million federal class action lawsuit by AIG shareholders was settled in April.
But Schneiderman has continued pursuing the lifetime bans and other potential sanctions, including recovery of the costs of the litigation and recovery of any “ill-gotten gains.”
Lawyers for Greenberg and Smith had asked the Court of Appeals to dismiss the case for lack of evidence and challenged the attorney general’s right to go after “equitable relief” through the lawsuit.
The unanimous ruling by the seven-judge panel said the issues should be put to trial.
“We have no difficulty in concluding that, in this civil case, there is evidence sufficient for trial that both Greenberg and Smith participated in a fraud,” the court said. “The credibility of their denials is for a fact finder to decide.”
The lawsuit claims Greenberg and Smith participated in a “sham transaction” between AIG and General Reinsurance Corp. meant bolster AIG’s financial statements and stock performance by showing increased insurance reserves.
Greenberg and Smith settled related federal Securities and Exchange Commission complaints without admitting wrongdoing in 2009.
Greenberg, who over a 35-year career built AIG from a small company into the world’s largest insurer, lost his job in 2005 amid Spitzer’s allegations.
Lawyers for both men said they were pleased the request for damages has been dropped, and they’ll continue to challenge the fraud complaint.
“We are disappointed that the Court of Appeals did not dismiss the attorney general’s recently raised claims for injunctive relief, but we are confident that the action will be dismissed by the lower courts,” said David Boies, who represents Greenberg.
Smith’s lawyer, Vincent Sama, said he’s “confident that the lower courts will dismiss what remains of this case.”
The Court of Appeals upheld a mid-level appeals court ruling that the case could continue.
Schneiderman spokesman Damien LaVera said the attorney general is “committed to ensuring that anyone who commits fraud is held accountable for their actions no matter how wealthy they are or how many powerful friends they have.”